The coronavirus pandemic changed the face of retail significantly. Not only did it spearhead the closure of many stores -- a fact that's hurt malls and shopping centers in a very big way -- but it also inspired many consumers to take their business online and avoid the health risks associated with in-person shopping.
In fact, digital sales soared during the pandemic, and now that consumers are used to shopping online, they're likely to continue doing so for the foreseeable future, even as coronavirus restrictions are lifted and more people grow comfortable with the idea of shopping in person again. That means retailers need to make sure they can keep up with online demand to avoid losing revenue.
Nordstrom (NYSE: JWN) is one retailer that's looking to up its e-commerce game. But will that move end up hurting real estate investors?
A digital shift
Nordstrom's 2021 first-quarter numbers disappointed some analysts. Though net sales climbed 44% from 2020, they also fell 13% from 2019.
Meanwhile, online sales were up 23% year over year, and they rose 28% compared to 2019. They also accounted for 46% of all sales during the quarter.
One issue that Nordstrom really struggled with this past quarter was its product line. During the pandemic, many consumers started spending more money on household goods and less on apparel (which became less necessary with so many people working from home), but Nordstrom didn't adjust its inventory to meet that shifting demand.
But now, Nordstrom is in fact making changes with regard to digital sales. In fact, the department store has plans to expand its online inventory from 300,000 items to over 1.5 million over the next three to five years.
Nordstrom is also investing in a digital-first platform that will change the way it works with suppliers for more cost-effective shipping. As part of this process, Nordstrom hopes to expand its home goods selection -- a category in which it has long lagged behind competing department stores, like Macy's.
The impact on real estate investors
The fact that Nordstrom is acting strategically to generate revenue and improve the customer experience is a good thing. In an age when so many department stores have closed permanently or risk shuttering in the near term, malls and shopping centers need Nordstrom to maintain its staying power so it can continue to serve as an anchor tenant.
On the other hand, if Nordstrom focuses too heavily on digital sales, its physical stores might suffer. And the retailer might even make the decision to shutter underperforming locations. In 2020, Nordstrom pulled 16 full-line stores from its lineup, and if those closures continue, it could hurt real estate investors who own shopping center and mall REITs (real estate investment trusts).
A general shift to digital sales could be here to stay, and retailers need to ramp up their e-commerce game to stay competitive. Nordstrom's move to invest in digital sales is a smart, strategic one. But it's hard to ignore the fact that real estate investors could get hammered in its wake.